Bank ringfencing will create IT jobs boom – but only after 2016

The Chancellor's acceptance yesterday of the Vickers Report, which recommended banks separate their retail and investment units in the interests of stability, will require billions of pounds of IT and operational investment from banks.

Complex operational split proposed by Vickers report will require years of planning

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The Chancellor's acceptance yesterday of the Vickers Report, which recommended banks separate their retail and investment units in the interests of stability, will require billions of pounds of IT and operational investment from banks.

The move will create thousands of IT jobs, as banks strive to bring about a complex technology separation. But financial IT experts warned that there will not be a jobs boom for at least the next four years.

"The interesting question is the timeline that banks will be willing to commit to. The legislation will not be fully drafted until 2015, with implementation by 2019. It would not be surprising to see an extended planning period of analysis and design before industrial strength implementation begins," said Laurie Boyall, chief executive at financial recruitment firm McGregor-Boyall.

"Much could happen politically, economically and financially during this period," he added. But if the work does happen, he said, the projects will be "gigantic" and require "extremely large amounts of resource".

Chris Skinner, chief executive at financial think-tank Balatro, agreed that the IT planning stage could be complex and drawn out before any changes are effected.

"In a number of banks it'll be a very fine line between what technology serves the investment bank and what serves retail," he said. "With Barclays, for example, it seems that Barclays Capital would be separated with a clearer line from Barclays retail bank, but with banks such as RBS - where the investment arm is more a complement to the main retail bank, with some crossover - it's especially tricky."

Skinner said the banks would then face questions of exactly how far to go in separating the systems. "They will also be asking themselves just how far they have to go with IT separation, whether they mirror a system in the different units - with different data - or whether they run a completely separately configured system."

Mathew Wells, a managing consultant at financial advisory firm Hudson & Yorke, agreed that the proposals "will require a significant change programme, especially where those affected by the proposals are required to not only separate IT systems but also face the possibility of entire IT operations being restructured".

The work will provide well-paid jobs for those with core business change and technology change expertise, firstly in the area of analysis and planning, Boyall added. With a potential "pressure" on the market to find enough skills, he said, this will "drive up" pay rates. "When this project is happening with other regulatory projects (such as Basel III), the pressure is amplified."

It remained unclear how much of the work will be outsourced, Boyall said, but much of the early planning and implementation phases are expected to be in the UK with some later software development offshore - a common arrangement.

Ben Wilson, head of financial services at IT industry association Intellect, said there was only such a large amount of IT work awaiting banks because the Vickers report did not take the simpler option - of using better data analysis to predict problems.

"Intellect has long said that ring fencing retail banks is an expensive and complex duplication of effort, and the same results could be achieved by giving banks and regulators the tools to collect, analyse and understand risk data, complemented by ongoing efforts to allow banks to fail in an orderly fashion," he said.

The government needed to "carefully consider" the role of the technology industry, "which provides the platforms and innovation upon which the financial system is built", he said. It should assess how the industry can provide the right tools "to reduce the impact that implementation will have on customers and the wider economy".

Skinner said data analysis was a problem, especially as investment banks conducted high frequency algorithmic trading. Banks needed to urgently fund work in this area, he said.

"There are a lot of discussions around FGPA [field programmable gate array] circuits, a type of programmable circuit that could be used to improve real time data analysis around high speed trades," he said. "The analysis does need to do some catching up with the trading itself."

But Ralph Silva, managing director at analyst firm SRN, said that analysis would be eased by splitting the banks - even if the split itself does initially require a large amount of work.

"If banks are in smaller pieces, than we will have to intervene earlier because banks will not be able to use the funds from one side to support the other," he said. "The result would be that we identify problems earlier and that ultimately we would fix them sooner and use less money."